Accept Special Sales Order
Not what you're looking for?
AAA Lock Manufacturing Co. makes and sells several models of locks. The cost records for the ZForce lock shows that manufacturing costs total $29.00 per lock. An analysis of this amount indicates that $16.75 of the total cost has a variable cost behavior pattern, and the remainder is an allocation of fixed manufacturing overhead. The normal selling price of this model is $38.75 per lock. A chain store has offered to buy 15,000 ZForce locks from AAA Lock at a price of $20.00 each to sell in a market that would not compete with AAA Lock's regular business. AAA Lock has manufacturing capacity available and could make these locks without incurring additional fixed manufacturing overhead.
Required:
a) Calculate the effect on AAA Lock's operating income of accepting the order from the chain store.
b) If AAA Lock's costs had not been classified by cost behavior pattern, is it likely that a correct special order analysis would have been made? Explain your answer.
c) Identify the key qualitative factors that AAA Lock managers should consider with respect to this special order decision.
Purchase this Solution
Solution Summary
This solution includes required calculations for the increase in operating income. Explanation for cost behavior effects and key qualitative factors to be considered are also discussed.
Purchase this Solution
Free BrainMass Quizzes
Introduction to Finance
This quiz test introductory finance topics.
Understanding the Accounting Equation
These 10 questions help a new student of accounting to understand the basic premise of accounting and how it is applied to the business world.
Change and Resistance within Organizations
This quiz intended to help students understand change and resistance in organizations
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.